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UK needs another £50bn of QE as economy weakens: BCC

The Monetary Policy Committee (MPC) must inject a further £50bn into Britain's fragile economy to stave off a double-dip recession, the British Chamber of Commerce warns.

David Kern, the chief economist at the BCC, sounded a strong note of caution in the group's latest Quarterly Economic Survey (QES). Its figures suggest the UK economy slowed considerably in the third quarter of 2010.

He said risks of a setback are likely to remain serious for a "considerable time", and low interest rates will not be enough to stave off the risks of the UK re-entering recession.

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"The MPC should seriously consider increasing the quantitative easing (QE) programme to £250bn before the end of 2010, to enhance the economy's ability to cope. Reducing threats of a double-dip recession must be the main policy priority."

It is also "essential" for interest rates to be kept at very low levels for an extended period, he says, though adding without further QE this will not be enough to ensure the recovery.

"With worrying signs the global economy may slow over the coming months, and with the public sector's share in the UK economy set to shrink, it is vital to take forceful steps to sustain the recovery and support the private sector," says Kern.

He says it is important not to overstate the gloom, as growth remains in positive territory, but called QES results on service sector performance "particularly disturbing".

"The dismal performance of the service sector is particularly disturbing since it occurs even before VAT is due to rise to 20%, and before the full impact of the tough deficit-cutting measures take effect"